Unit 1 Notes

Day 1:
Macroeconomics- study of the major components of the economy: Inflation, GDP, unemployment, supply and demand.
Microeconomics- study of how households and firms make decisions and how they interact in markets. Supply and demand, market structures.
Positive versus normative economics
Positive- Attempting to describe the world as it is. Very descriptive. Example. "minimum-wage causes unemployment".
Normative- describes the world and how it should be. Prescriptive in nature. Example "The government should raise minimum wage."

Wants versus needs
Wants- desires of citizens: broader then needs.
Needs- basic requirements for survival.

Scarcity versus Shortage
Scarcity- most basic fundamental economic problem that all societies face. Facing unlimited wants and limited resources.
Shortage- situation in which quantity demanded is greater than quantity supplied.

Day 2:

Goods- tangible commodities can be bought, sold, traded and produced.
    1) consumer goods- goods intended for final use by the consumers.
    2) capital goods- items used in the creation of other goods such as factory machinery and trucks.
Services- work that is performed for someone else.

Factors of Production (FoP)
1) Land
2) Labor
3) Capital
    Human- knowledge and skills a worker gains through education and experience.
    Physical- human made objects used to create other goods and services. Example tools, machines, building.
4) Entreprenuership.

Opportunity Cost- most desirable alternative giving up by making a decision. I.e trade-off.

Production Possiblities Graph (ppg)
Curve(ppc)
Frontier(ppf)

(PPG)- show alternative ways to use resources.

Productive efficiency- producing at the lowest cost and allocative resources efficiently and have full employments.
  - in order to be efficient. Any point on a curve.
Allocative efficiency- combination most desires by society, I.e where to produce on the curve.

Day3:
Law of Increasing Opportunity Cost
  -When resources are shifted from making one good or service to another, the cost of producing the second item increase.
*This occurs because not all resources are equally shifted for the production of all good and services.

4 Key Assumptions of PPG
1)Only 2 goods can be produced.
2) Full employment of resources
3)Fixed Resources
4) Fixed technology

Day 4:
Elastic: a product is elastic when demand when demand change greatly given a small change in price.(greater than 1)
1. many substitutes
2. luxury goods
Ex. cars, coke, steak
inelastic: a product is said to be inelastic if the demand for it will not change or it changes very little regardless of price. ( less than 1)
1. few substitutes
2. necessary
Ex. heart medicine gas, salt, milk
unitary elastic= 1
*PED= step 1 change in quantity   new-old/old
change in price  new-old/old
then change in quantity/change in price

Day 6
Price floor- minimum price for good or service. i.e minimum wage
Price ceiling- maximum price that can be legally charged for a good or service. i.e rent control

Expansion- real output in the economy is increasing and unemployment rate decreasing
Peak- Real output is at highest point
Contractionary/Recession- real output decreasing and unemployment rate rising
Trough- lowest point of real GDP